BONDS: EGBs-GILTS CASH CLOSE: Gilts Underperform Alongside BoE Reappraisal
Core European curves bear steepened Thursday, reversing some of the prior session's flattening.
- Gilts outperformed core EGBs ahead of the Bank of England decision, with the space as a whole weighed down by supply pressure (French/Spanish bond auctions), a risk-on move in equities, and solid German factory order data.
- The BoE decision appeared to vindicate the move as it brought an immediate dovish reaction with MPC member Mann surprisingly dissenting in favour of a 50bp cut vs the 25bp delivered (joining dove Dhingra).
- However that proved temporary, with a bearish reversal following the decision \as the details were digested, including as closer inspection of the Bank's higher-than-expected inflation projections, while Gov Bailey noted uncertainty over future cuts.
- For the day, Gilts underperformed Bunds, with both curves bear steepening.
- Periphery EGB spreads tightened, benefiting from European equities reaching fresh record highs.
- Friday's calendar includes appearances by BOE's Pill and ECB's Guindos.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 0.2bps at 2.059%, 5-Yr is up 1.1bps at 2.166%, 10-Yr is up 1.3bps at 2.379%, and 30-Yr is up 1.3bps at 2.612%.
- UK: The 2-Yr yield is up 2.4bps at 4.174%, 5-Yr is up 5.1bps at 4.175%, 10-Yr is up 4.7bps at 4.484%, and 30-Yr is up 3.8bps at 5.061%.
- Italian BTP spread down 1.8bps at 106.7bps / French OAT unchanged at 71.6bps
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FED: US TSY 9Y-10M AUCTION: NON-COMP BIDS $120 MLN FROM $39.000 BLN TOTAL
- US TSY 9Y-10M AUCTION: NON-COMP BIDS $120 MLN FROM $39.000 BLN TOTAL
FED: Bostic Echoes In Cautious Approach In Pre-Recorded Interview
A transcript from Atlanta Fed's Bostic's interview from back on Dec 9 (pre the Dec 17-18 FOMC meeting), a long while ago but he hasn't publicly spoken since then. He voted last year and the role isn't set to vote again until 2027.
He echoed a need for caution that other members have since expressed: “Given that kind of bumpiness in the measures, I think that will call for our policy approach to be more cautious. [...] "I want to make sure we get the right signal, and make sure that our policy is calibrated to that right signal. And if we’ve got to err, I would err on the upside. I would want to make sure—for sure—that inflation gets to 2 percent, which means we may have to keep our policy rate higher longer than people might expect, or we may have to be more deliberate in the pacing of reducing our policy. So on net it’ll be higher, even as we’re higher than an original baseline on what that movement of 2 percent might look like."
US: Trump Cabinet Nominees Appear Set For Confirmation Ahead Of Senate Hearings
The Senate will begin confirmation hearings for President-elect Donald Trump’s cabinet nominations next week. Data from Polymarkets shows bettors are increasingly confident that Trump’s four most embattled Cabinet nominees – Defense Secretary nominee PeteHegseth, FBI Director nominee Kash Patel, Health Secretary nominee Robert F. Kennedy Jr, and Director of National Intelligence nominee Tulsi Gabbard – are all on track for confirmation.
- On January 14, the Senate Armed Services Committee will hear testimony from Hegseth and the Judiciary Committee will hear from Trump’s Attorney General nominee Pam Bondi.
- On January 15, the Judiciary Committee will host Patel and Deputy Attorney General nominee Todd Blanche. The Committee on Environment and Public Works is also likely to hold a hearing for Trump’s nominee to run the Environmental Protection Agency, Lee Zeldin on January 15.
- CBS News reports that Senate Majority Leader John Thune (R-SD), “privately told Trump he believes Hegseth will have the votes to be confirmed as Defense secretary,” despite a string of allegations over his personal conduct.
Figure 1: Trump Cabinet Nominees, %Implied Probability of Senate Confirmation
Source: Polymarket
